With more and more evidence pointing to Apple's 2009 iPhone lineup consisting of three distinct models, the Royal Bank of Canada is the second investment firm to predict that one of those models will be a repackaged version of the existing 8GB iPhone 3G that will see its price tag lopped in half.

Discoveries within betas of Apple's upcoming iPhone 3.0 software over the past several months have turned up references to at least two new versions -- iPhone 2,1 and iPhone 3,1 -- of the touch-screen handset that could hit the market this summer. Meanwhile, it's been speculated that references to "ChinaBrick" found in the same software could indicate a third model may be in the works specifically for mainland China.

Those assumptions were reinforced earlier this week when unnamed sources claiming to be familiar with Apple's plans said the company is gearing up to introduce a trio of iPhones with distinct wireless hardware, each of which would be available in two capacities for a total of six new models.

More specifically, the report implied that countries with the most capable wireless networks, like the United States, would see an enhanced version of the iPhone 3G capable of 7.2Mbps downloads while other countries receive a version similar to the current iPhone 3G capable of 3.6Mbps 3G downloads. The third model would reportedly target only China and feature more limited functionality, possibly forgoing 3G connectivity entirely or offering compatibility with the government-backed TD-SCDMA standard.

In a lengthy research report to clients Wednesday, RBC Capital Markets analyst Mike Abramsky made no mention of a model specific to China but did take a stab at predicting the specifications for the other two models.

Echoing a recent forum post from an alleged insider with ties to Apple's Taiwanese manufacturing partners, Abramsky said he believes that next month's Apple Worldwide Developers Conference will see the introduction of an "iPhone Pro" that will sell for $199 and $299 with storage capacities of 16GB and 32GB respectively. Inside, he expects a new 3G wireless chip capable of connecting to wireless networks that support download speeds of up to 7.2Mbps, a 600MHz Samsung ARM processor, 3.2-megapixel camera with video capabilities, a magnetometer, and other features already found on the current iPhone 3G.

However, the core of analyst's report revolves around a prediction that Apple will continue to sell its existing iPhone 3G in an 8GB configuration, only pricing it down to $99 from $199 in a bid to broaden its share of the worldwide smartphone market, boost its multi-touch install base, and poke holes in any price umbrella rivals may seek out in their own bid for market share.

Abramsky is the second analyst in as many days to make such a call. His research follows on the heels of a similar report Tuesday from Morgan Stanley analyst Katy Huberty that boosted Apple shares by nearly 7%. Like her colleague at RBC, she predicted that Apple would continue to sell its current iPhone 3G hardware for either $99 or $149 when it announces new models next month. She said the move could spur a 50 - 100% incremental increase in unit demand that could help the company sell 9.9 million total iPhones during the third quarter, 24.8 million during the entire 2009 calendar year, and 36.2 million in 2010.

For his model, Abramsky cited an internal ChangeWave survey of 2,900 respondents in making a more conservative prediction that a $99 iPhone would accelerate iPhone momentum by 30 - 40%. He estimates Apple could sell 5 million of the cheaper devices in fiscal 2009 and 22 million in fiscal 2010, for a total of 18 million iPhones in fiscal 2009 and 28 million in fiscal 2010. Apple's fiscal year runs October through September, while the calendar year is obviously January through December. As of press time, Apple share were up roughly another 3% to $134.50.

Assuming Apple's moves play out as expected, Abramsky sees Apple capturing a 2.4% share of the global handset market by 2010 while the total install base of multi-touch devices capable of tapping into the App Store swells to 94 million. He also cited a different internal study of 2,700 respondents as suggesting that iPhone sales could see an additional 20 - 25% momentum boost should carriers introduce more affordable data plans alongside new models.

"While iPhone carriers (especially AT&T) may be cautious to reduce monthly data pricing ($30/mo currently at AT&T for unlimited data) given network capacity constraints, introduction of a ‘light’ data plan for $15-20/mo with data caps (e.g. 100-250MB/mo) would further expand iPhone’s addressable market and accelerate uptake with more price-sensitive buyers," he wrote. "However, this may require Apple and the carrier to offer a convenient way to protect ‘light’ data users from unexpected data charges over their limits."

In addition, the RBC analyst refuses to discard the notion that Apple is working on an "iPhone mini," which he now believes could arrive next year and serve as a catalyst for further share gains, momentum and valuation.

"While features, pricing distribution appear to be not yet finalized, we believe an iPhone Nano could be sold on a pre-paid or device only (no SIM card) basis over-the-counter in Apple stores and third party distributors, which are more prominent internationally vs. carrier stores," he told clients. "The prepaid market is massive (est. 60% or 2.4B of 4B total mobile phone users) and dominant in key mature phone markets like Germany, UK, Italy, and emerging markets (Brazil, China, India, Russia, etc.)."

Abramsky reiterated his Outperform rating and $165 price target on shares of Apple.

i don't see it. IF the 8gb goes down to $99-150 it will likely be end of line pricing to sell out any last units and then that's it. if 8gb sticks I highly doubt it will be anything more than perhaps a $50 drop until the same terms (no device only at that price, no pre-paid except where local law requires that option)

The smaller details display ignorance with regards to Apple's goals. Whether this is the year the iPhone becomes a family of products is a tough call but there's no god damn reason only one of the models would have magnetometers. This is a software platform. Making completely different hardware sensors and features available to different phones is what screwed over every other 'smartphone' producer. The name of this game is making it as easy for one app developer to put out something that takes advantage of as many units in the wild as possible.

RBC you've had a decade to examine how the Macintosh line has developed. Take a hint.

This is a software platform. There is no economy model without a compass.

This is a software platform. There is no economy model without a compass.

I like your thinking, and think you're right. But in respect of other features, I'm worried that Apple is clinging to backwards-compatibility and uniformity; namely the screen. It concerns me that they're going to try to eke out another generation of the iPhone with a 480x320 screen, if that really is the case; especially if they don't go OLED. They're going to have to change the resolution and break backwards compatibility (to, e.g. take advantage of faster processors) at some point. There's certainly no reason for them to sell concurrently models that can't take advantage of the latest software, but there's no reason why they should hold back the latest iterations of the device. They need to come up with (and I'm sure they already have) a strategy for dealing with improvements like screen resolution, memory and processor speed, and I'm interested to see what they'll do. Particularly WRT resolution.

i don't see it. IF the 8gb goes down to $99-150 it will likely be end of line pricing to sell out any last units and then that's it. if 8gb sticks I highly doubt it will be anything more than perhaps a $50 drop until the same terms (no device only at that price, no pre-paid except where local law requires that option)

why not? the build costs are very low on the 8GB model using the new flash chips. it will be the entry level phone to compete with the pre, BB and winmo. a lot of people aren't willing to pay more than $50 or $100 for a cell phone and this will be the perfect way to capture that market.

I think that it could/would be a smart move to make different models to address different customers. Some don't want/need all the features a pro phone would have.

As for the software platform, looking at the actual iPod touch, without camera, I think there is nothing to go against keeping the current iPhone with 8GB. Just the same way they kept the first iPhone in the loop of the software-improvement.

"Put your hand on a hot stove for a minute, and it seems like an hour. Sit with a pretty girl for an hour, and it seems like a minute. THAT'S relativity." - Albert Einstein

why not? the build costs are very low on the 8GB model using the new flash chips. it will be the entry level phone to compete with the pre, BB and winmo. a lot of people aren't willing to pay more than $50 or $100 for a cell phone and this will be the perfect way to capture that market.

Exactly !

And this way, as it is a software platform, they will be able to deliver the software to even more people.

Just by the way, didn't they do the same thing with the Whitebook ?

"Put your hand on a hot stove for a minute, and it seems like an hour. Sit with a pretty girl for an hour, and it seems like a minute. THAT'S relativity." - Albert Einstein

why not? the build costs are very low on the 8GB model using the new flash chips. it will be the entry level phone to compete with the pre, BB and winmo. a lot of people aren't willing to pay more than $50 or $100 for a cell phone and this will be the perfect way to capture that market.

Absolutely. And it does make sense to differentiate in hardware, not software. Developers are used to it. First gen iPhone, both Touch generations and the 3G all have different hardware, and nobody has a problem with it. The biggest annoyances for them are different OS versions, screen resolutions and input methods Apple intelligently avoided those.

A 99-150 USD price point would make this the cheapest multi-touch smartphone on the market, and none of the competitors offers more than 8GB, even at 200-300 USD. With the biggest software selection, all the accessories and car integration, the entire iTunes ecosystem, etc. nothing any competitor can match for many years, this would sell a lot.

I like your thinking, and think you're right. But in respect of other features, I'm worried that Apple is clinging to backwards-compatibility and uniformity; namely the screen. It concerns me that they're going to try to eke out another generation of the iPhone with a 480x320 screen, if that really is the case; especially if they don't go OLED. They're going to have to change the resolution and break backwards compatibility (to, e.g. take advantage of faster processors) at some point. There's certainly no reason for them to sell concurrently models that can't take advantage of the latest software, but there's no reason why they should hold back the latest iterations of the device. They need to come up with (and I'm sure they already have) a strategy for dealing with improvements like screen resolution, memory and processor speed, and I'm interested to see what they'll do. Particularly WRT resolution.

Apple is no doubt checking out every combination that makes sense. What they will do going forward is a fools errand for us to try and figure out. They surprise us in many ways, most what we think of as good, but also some we think of as bad.

But often, in the end, they are proven to be right.

I would love to see an OLED screen. There is more than one phone with decent size OLEDS, and the new HD Zune will have one. There are some rumors that the new iPhones will as well, but it's just rumors.

Higher rez is difficult at this point. I'd like to see it, but how useful it will really be in the 3.5" screen, I don't know. It would be a bit sharper when one looks closely, but can more data be presented? Doubtful.

Isn't this the same analyst who was, for the longest time, predicting a two-digit end-2009 price for Apple -- i.e., essentially asking us to short AAPL?

Now he is up to a $165 target!? No mea culpa, no explanation?

(If I am wrong about this, let me apologize in advance).

It doesn't really matter. Situations change, and so should their forecasts.

As Apple says; they're not economists. These guys aren't either, and economists had exceptionally poor results in their own forecasts.

If I expected the economy to drop the way it did, I would have sold Apple when it was $200. The best I can do here is to understand that Apple is a very good company. They have very good products, are exceptionally conservative in their finances (too conservative for some), and are spending good amounts in R&D, as Jobs said they would during the downturn as others are slacking off there.

The stock is bouncing back in a bumpy way, and will get back to $200 at some point. It will move higher after that.

But when it was in the high 70's, that was hard to see, and the economy was in free fall.

Because Apple has been chanting the " One phone for all " mantra at every conference and press meet to date.

The One for All concept is easier to understand if we're talking about software compatibility. That's where it matters most.

Here in the US, a CDMA model likely isn't useful. But in China, a model that more closely conforms to their standards may. China has a market for cells that is substantially larger than anywhere else. That makes the difference.

I actually agree with Abramsky this round. Apple and the carriers need to do something to address the pre-paid segment with the phone. I am a business user, and I consider myself a pretty heavy user of my iPhone. I'm down to about 170MB/month over the last seven months. At first I was closer to 1GB per month, but the speed is just so damn slow, and with more websites offering mobile versions now it has tamed down significantly.

I'm not a big app downloader, and I do have wifi at home and in the office, but most of my usage is out and about.

I'm sure as hell not buying another smartphone that is SIM-locked. It's like throwing your life away when you are out of the country.

Here in the US, a CDMA model likely isn't useful. But in China, a model that more closely conforms to their standards may. China has a market for cells that is substantially larger than anywhere else. That makes the difference.

Not useful? Dude- who is the largest cell phone carrier in the US? I do believe however slightly that you are mistaken and that there would be a market in the US. for a CDMA version as well.

Not useful? Dude- who is the largest cell phone carrier in the US? I do believe however slightly that you are mistaken and that there would be a market in the US. for a CDMA version as well.

Not enough for Apple to bother with. It's not that there isn't a market.

What you forget is that Apple is taking business away from Verizon, Sprint and T-Mobile. That's where these new iPhone subscriptions are coming from after all.

So sure, Apple would get more business, but not as much as you think they would, and they may not get overall as good a deal from any other carriers if they supported more than one.

Once LTE is in enough places, then it would pay for Apple to be willing to get less back from AT&T and Verizon, as they would be selling the same phone and increased sales would more than make up for it.

But otherwise, it's not likely that Apple agrees with you. And why should we think that you know more than them?

It doesn't really matter. Situations change, and so should their forecasts.

As Apple says; they're not economists. These guys aren't either, and economists had exceptionally poor results in their own forecasts.

If I expected the economy to drop the way it did, I would have sold Apple when it was $200. The best I can do here is to understand that Apple is a very good company. They have very good products, are exceptionally conservative in their finances (too conservative for some), and are spending good amounts in R&D, as Jobs said they would during the downturn as others are slacking off there.

The stock is bouncing back in a bumpy way, and will get back to $200 at some point. It will move higher after that.

But when it was in the high 70's, that was hard to see, and the economy was in free fall.

I did not say anywhere that this specific guy mattered one way or another to me. My question was simply, wasn't this the same guy that was really bearish on Apple for the longest time (indeed, predicted a price of something like $70 or so, even after Apple had rebounded to the low $100s).

Oh, one clarification: you and I have a very different types of folks in mind when we say "economists". I pay no attention to Wall Street economists. Dime a dozen, and follow rather than lead. When I talk about economists, I usually mean folks like Krugman, Shiller, Feldstein. And, they do matter.

When I talk about economists, I usually mean folks like Krugman, Shiller, Feldstein. And, they do matter.

They only matter when they explain the past. They can't seem to look ahead any better than anyone else.

The problem is that economics is not a science in any way. It's a matter of guesswork. Educated guesswork, but guesswork all the same. None of their theories whether from the extreme right or left every seem able to capture what is going to happen more than a very few months in the future, and I can do about s well as they in that area.

They have massive amounts of data to use, but economies are based on people's feeling as as much as that data. And that's where they fail. That's why all economic models I've ever seen are feeble attempts to quantify what isn't yet quantifiable.

I am personally offended that Microsoft is coming out with an OLED screen on the new Zune HD, without knowing if Apple will offer same on the Touch or iPhone.

I have secretly hoped for OLED tech in the next generation, but is it possible that MS won this round? Is it now only about market share and price point - meaning that if MS does put out a product with a better display that they will suffer for it because it is more expensive (assumption)? Did Apple overlook this obvious and simple upgrade? UGH!

I am personally offended that Microsoft is coming out with an OLED screen on the new Zune HD, without knowing if Apple will offer same on the Touch or iPhone.

I have secretly hoped for OLED tech in the next generation, but is it possible that MS won this round? Is it now only about market share and price point - meaning that if MS does put out a product with a better display that they will suffer for it because it is more expensive (assumption)? Did Apple overlook this obvious and simple upgrade? UGH!

Will you stop with the stupid smilies already and use them for what they were intended? They don't make your lack of understanding look any better.

Apparently, you don't bother to read what other posters are actually saying before responding. You certainly didn't understand my post, and it was written especially for you, very simple.

Ok, since it was written especially for me, I reread it and see your point- somewhat.\
I still don't understand why you think it's Apple and not AT&T that is keeping iPhone from expanding into other US markets?

They only matter when they explain the past. They can't seem to look ahead any better than anyone else.

The problem is that economics is not a science in any way. It's a matter of guesswork. Educated guesswork, but guesswork all the same. None of their theories whether from the extreme right or left every seem able to capture what is going to happen more than a very few months in the future, and I can do about s well as they in that area.

They have massive amounts of data to use, but economies are based on people's feeling as as much as that data. And that's where they fail. That's why all economic models I've ever seen are feeble attempts to quantify what isn't yet quantifiable.

The mistake that people make way too often -- perhaps you do too -- is to simplistically look to economic models and economists to say "what" and "when" at the same time. No model can. Anyone who claims to be able to do that is a charlatan.

All that any good model can do is to describe tendencies in a system -- e.g., such as, "at a P/E of 25, the stock market is overvalued, and will correct in the other direction". It cannot tell you when it will correct. For that, you need astrology. Similarly, economics can tell you that if the price went up people would demand less, and companies would supply more, that things would move to an equilibrium. But nobody's actually documented an "equilibrium." It does not mean it does not happen, and often.

The reason that economic predictions "fail" is that people also adjust their behaviors to expectations and predictions -- i.e., the system is not, unlike in a great deal of the natural world, deterministic (or relatively so). It is behavioral. Those are extremely difficult to predict with certainty. For instance, if I thought that everyone thought that stocks will go up, I should/will buy today. That, in turn, will make stocks go up because the demand for stocks went up, making one buy even more... and so on. But an objective person can step back and look at it -- as for example, Shiller did with the stock market in 2001 and with the housing market in 2007 -- and say that prices have deviated from fundamentals, and that things will correct. But one can't (just as Shiller didn't) say when.

More importantly, the role of any good model is really only to get you to think about "what if" or enable you, as a consumer, producer, investor, etc., to make "if-then" judgments. Without that, there is no basis for forecasting or planning anything. And without planning, there can be no resource allocation, and without resource allocation, all economic activity will grind to a halt. Period.

To say that it is not a "science" is extreme: then we should strike the phrase "social science" altogether. Economics is at least as good as any other branch of social science in its predictive validity.

You just expect too much of it, or are looking at the wrong models, or listening to the wrong economists.

Ok, since it was written especially for me, I reread it and see your point- somewhat.\
I still don't understand why you think it's Apple and not AT&T that is keeping iPhone from expanding into other US markets?

It's both.

Apple needed something from a carrier, and AT&T gave it to them. But it also costs AT&T something.

When two companies join in a business venture, which is what this is, they must both benefit.

If only one benefits than it is a bad venture,

Here, it seems that both are benefitting.

Apple got AT&T to give up wide swaths of control. Never before had a carrier allowed a manufacturer to control music, apps, phone features, and to also have to re-write its mail software to allow something such as "Visual Voicemail", a major step up from what came before, even on the Blackberry.

AT&T wanted the phone so badly that they agreed to whatever Apple was willing to produceeven before they saw anything! They also gave Apple large amounts of money.

Who else was willing to do that? Verizon? apparently not.

So naturally, AT&T asked for a several year exclusive in the USA contract. That seems fair. Apple doesn't seem to be regretting it. After all, it was the successful launch of the iPhone that gave Apple the strong position it had in negotiations with the other carriers worldwide.

The mistake that people make way too often -- perhaps you do too -- is to simplistically look to economic models and economists to say "what" and "when" at the same time. No model can. Anyone who claims to be able to do that is a charlatan.

I'm not looking at this simplistically. I understand it pretty well.

Quote:

All that any good model can do is to describe tendencies in a system -- e.g., such as, "at a P/E of 25, the stock market is overvalued, and will correct in the other direction". It cannot tell you when it will correct. For that, you need astrology. Similarly, economics can tell you that if the price went up people would demand less, and companies would supply more, that things would move to an equilibrium. But nobody's actually documented an "equilibrium." It does not mean it does not happen, and often.

Economics is far more than that. If that was all it is then people wouldn't be getting Phd's in it. economics 101 would be the beginning and the end.

I look at economic models all the time. they are very interesting. but the value to a model is its predictive validity. and that's where things fall apart.

The government and businesses employ tens of thousands of economists. They are plugging data into their models constantly. They look for trends, hoping to predict what will happen next week, next month, in six months, a year, two years. But they rarely get it right for more than a low batting average.

Remember Long Term Capital? They had several Nobel Prize economists as owners of the fund. They came up with these complex models. They crashed very badly, and almost took the entire market with them. What happened? They forgot that their models only took average moves into account. they never looked at what would happen with a big swing.

What about all these economists working for the other hedge funds that crashed? The brokerage funds? None of them saw what turned out to be obvious, and look at where we are!

Quote:

The reason that economic predictions "fail" is that people also adjust their behaviors to expectations and predictions -- i.e., the system is not, unlike in a great deal of the natural world, deterministic (or relatively so). It is behavioral. Those are extremely difficult to predict with certainty. For instance, if I thought that everyone thought that stocks will go up, I should/will buy today. That, in turn, will make stocks go up because the demand for stocks went up, making one buy even more... and so on. But an objective person can step back and look at it -- as for example, Shiller did with the stock market in 2001 and with the housing market in 2007 -- and say that prices have deviated from fundamentals, and that things will correct. But one can't (just as Shiller didn't) say when.

I'm not arguing with you there. In fact, that's what I was telling you.

Economists need to be psychologists as well.

Some of these guys get into a groove for a while, but then crash just like everyone else. It's a matter of luck for them too.

Quote:

More importantly, the role of any good model is really only to get you to think about "what if" or enable you, as a consumer, producer, investor, etc., to make "if-then" judgments. Without that, there is no basis for forecasting or planning anything. And without planning, there can be no resource allocation, and without resource allocation, all economic activity will grind to a halt. Period.

Of course. But the consumer can't evaluate any of this. Even "sophisticated investors" got taken by Madoff and others.

Quote:

To say that it is not a "science" is extreme: then we should strike the phrase "social science" altogether. Economics is at least as good as any other branch of social science in its predictive validity.

My degrees are in psychology and biology, with a minor in physics.

I gave up on psychology early, because it's really a pseudo-science right now, like all of the other social sciences, which is what economics is.

Since its not ethical to experiment on people, we have no way of doing a proper experiment in a way that will satisfy the rigorous rules we use in the other sciences. That makes much of social science a very inexact area of research.

We can't get a million people and put them in an area by themselves and do social science on them the way the Soviets almost did when they moved populations around like sheep.

Therefor, much theory is not verified in practice. The common, (and fun!) practice of using undergrad students for subjects in experiments is nice, but it doesn't represent enough of the complex world we live in.

And that's why we have Friedman on the one side, and Galbraith on the other, both addressing the same situation, but coming out with totally different theories.

Quote:

You just expect too much of it, or are looking at the wrong models, or listening to the wrong economists.

Apple needed something from a carrier, and AT&T gave it to them. But it also costs AT&T something.

When two companies join in a business venture, which is what this is, they must both benefit.

If only one benefits than it is a bad venture,

Here, it seems that both are benefitting.

Apple got AT&T to give up wide swaths of control. Never before had a carrier allowed a manufacturer to control music, apps, phone features, and to also have to re-write its mail software to allow something such as "Visual Voicemail", a major step up from what came before, even on the Blackberry.

AT&T wanted the phone so badly that they agreed to whatever Apple was willing to produce—even before they saw anything! They also gave Apple large amounts of money.

Who else was willing to do that? Verizon? apparently not.

So naturally, AT&T asked for a several year exclusive in the USA contract. That seems fair. Apple doesn't seem to be regretting it. After all, it was the successful launch of the iPhone that gave Apple the strong position it had in negotiations with the other carriers worldwide.

Once the contract is over, maybe things will change

But that requires LTE

Perfect. Thank you- that makes sense.
Now I wonder how Apple feels about the AT&T service issues. It's like the baby and the bath water.
It does seem like AT&T is benefitting more in the long term with their mediocre service of the last 2 years.